Monday, 11 April 2011

Cranks

Last week I wrote a short piece about the two different styles of political economy writers. I noted that they can take a cautious approach, or be more bombastic and forthright. On reading this, a friend noted this was a quite a difficult distinction to draw, and it was “a bit subtle”.

As this person has an interest in science, I got to thinking that a better word for someone taking the latter approach is often “crank”. In the world of science and medicine, cranks routinely emerge but are usually (sometimes after a period of time) pushed out of normal discourse. If cranks do get taken seriously, and cause harm, then there are a number of institutional mechanisms to eradicate their influence and there is an effort to correct mistakes.

The recent case of Andrew Wakefield and the MMR scare is a good example of this. Mr. Wakefield’s views were, for media-related reasons, taken seriously for a while until eventually he was exposed as a crank. In 2010 he was struck off by the General Medical Council.

Another was the example of Simon Winchester, a science writer. Mr. Winchester wrote an article for Newsweek on 13 March claiming that “The Scariest Earthquake is Yet to Come”. It didn’t take long for geologists to reject Mr. Winchester’s claims, and though his “bogus claim” was picked up by many news sources in the US, punch in “Simon Winchester” and “bogus” to Google and you can see the world of science fighting back.

Politics and finance does not have the same process.  Indeed, often the most sensationalist ideas get picked up while the accurate ones are ignored. The list of cranks writing about political economy, particularly after the financial crash, is long, and many get a lot of attention. However, there is no mechanism or culture of correcting mistakes. People with silly views of the world usually remain uncorrected.

One of the most forthright of these is Johann Hari, the Independent columnist. Here’s an example of what he does. He wrote a story for the Huffington Post in December declaring: “The Banks Have Not Been Reregulated by Our Corrupt Politicians. So Get Ready for the Next Crash”. There was little in the story that was accurate, neither in his general assertions or the details provided.

As an example, to justify the claim that “the banks have not been reregulated”, he said that: “Most economists believe the banks need to hold capital reserves of 30 percent to protect against another crash. The new rules say they have to hold 3 percent, by 2019, if you wouldn't mind awfully.”

Neither of these claims are any way near true. “Most economists” wouldn’t claim a 30% capital ratio to be desirable, and even the article he links as a source doesn’t say this (“equity requirements need to be very much higher, perhaps as high as 20 or 30 per cent”) and he’s the only writer I’ve seen suggesting such a high number. His second point about the “new rules” refers to Basel III, which states that banks have to hold 7% by 2019 not 3%. (As an FYI, today’s ICB report on UK banking says the figure for retail banks should be 10%.)

I wrote to Mr. Hari asking him if he could point me towards his sources for these claims. I didn’t get a response. The article was widely republished and remains on his website, uncorrected (September 2011 update: the article has been removed from his website between July and September 2011). General readers will never realise that the article was misleading and its key facts were wrong.

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